The world is headed for an economic slowdown, according to the Economic Cycle Research Institute’s (ECRI) Long Leading Index of global industrial growth.
“It is not country specific, but imagine if you could add up all the activity in factories around the world and see if it was accelerating or decelerating, that is what this indicator is focused on,” says Lakshman founder and managing director of the research centre. “And it has been telling us very clearly, unambiguously, that we have a peak in global industrial growth this summer.”
Take a look at the institute’s chart here. The downturn follows in lock-step the fall in short-term indicators like ISM survey and the ECRI’s Industrial Commodity Inflation index.
Also of note in ECRI’s recent data is its future inflation gauge, which excludes commodities. This index had been inching up since last year until last month, says Achuthan, when the index dropped two points, or a little less than two per cent.
Why does this matter?
“There is a linkage in cycles of inflation and cycles in growth,” he tells Aaron in the interview above. “Basically, one quarter of the time you can have a downturn in the inflation cycle ahead of a downturn in economic growth.”
As Aaron points out in the interview, Bernanke might have been right in calling inflation “transitory” and those who have been betting on higher rates and inflation should be rethinking those bets.
The Good And The Bad
The good news as the slowdown quickly approaches is that Achuthan does not believe another recession is headed our way.
The bad news is he says “the U.S. economy will not escape” the downturn, but will “participate in it…and in one way, shape or form, it is going to impact this recovery.”
So far, he’s got a pretty good track record in predicting these sorts of things.
Last September he sat down with The Daily Ticker (nee Tech Ticker) to offer his opinion after a number of the ECRI’s indicators plummeted and in turn put investors on edge. Achuthan put the chance of a double-dip at more than 50%, but also said there was a very good possibility that the economy would have a “soft landing,” which turns out it did.